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Abstract
Purpose - This study aims to examine important situational factors impacting expatriate compensation and common practices utilized in compensating expatriates.
Design/methodology/approach - A synthesis of literature was reviewed, leading to the identification of numerous situational or contextual factors impacting expatriate compensation. A review of extant literature also identified several customary approaches to expatriate compensation.
Findings - A variety of factors can directly affect expatriate compensation, with three primary approaches an organization should consider. These factors include host-country cost of living, housing, dependent education, tax implications and health care - factors most often incorporated as a component of one of the primary approaches to compensation discussions: destination-based approach, the balance-sheet approach, and the international headquarters approach.
Practical implications - This article was intended to enhance understanding of expatriate compensation by collectively examining not only the "how" (primary approaches) but also the "why" (salient contextual or situation factors) firms should consider when determining how to assemble an appropriate package.
Originality/value - Presenting the factors and practices together makes an important contribution to the literature on expatriate compensation by addressing not only the "how" (customary approaches) of expatriate compensation, but also the "why" (salient contextual factors).
Keywords Expatriates, Remuneration, Pay
Paper type Conceptual paper
The globalization of our world economy has evolved significantly over recent decades as organizations have sought opportunities to perpetuate and remain competitive (Lowe et al, 2002). One of the most obvious implications has been the tremendous increase in the number of US workers who are being transferred to foreign countries. In fact, current estimates suggest that over two million Americans are working abroad for US companies at any given time (McCallum and Olson, 2004; Peterson et al, 1996). Previously, being sent on an overseas assignment was an indicator of a career in decline. Currently, however, many organizations, particularly larger multinational corporations (MNCs), consider an overseas assignment a prerequisite for advancing one's career (Chen et al., 2002; Ioannou, 1995).
The use of expatriate employees by organizations in their foreign subsidiaries represents a substantial investment with costs of expatriate failure reaching exorbitant levels (Baruch, 2004). Specifically, recent estimates suggest that each expatriate failure, a premature departure, can cost an organization in excess of $1 million (Insch and Daniels, 2002; Wentland, 2003). Taken in aggregate,...